Tighter credit, lending conditions build case for U.S. Federal Reserve policy hold

U.S. Federal Reserve officials will likely leave their policy rate on hold at next week’s meeting thanks in large part to a new dynamic unfolding before them: Other forces are finally doing the work for them.

The Fed’s latest survey on banking conditions won’t be published until the Monday after next week’s meeting, but past practice suggests findings from its October Senior Loan Officer Opinion Survey, or SLOOS, are in policy-makers’ hands this week. Businesses have become particularly uninterested in borrowing, banks reported in the Fed’s July senior loan officers opinion survey.

Fed policy-makers seem to be largely on that same page, with several noting the rise in the yield on the benchmark 10-year Treasury note – up about a full percentage point since the Fed’s last rate hike, to 4.89 per cent – will also cool the economy. And a year-long decline in loan demand accelerated in the second half of September, according to a twice-quarterly Dallas Fed survey of Texas banking conditions that closely tracks the Fed’s national survey.

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